Being in problem debt can be serious, but it doesn’t have to be scary. The more you understand about debt and debt solutions, the more power you have to change your situation.

There’s a lot of information out there about debt. The problem is, some of it can be confusing and often misleading. Here’s our list of 13 common myths about debt and debt solutions, to help you sort the facts from the horror stories. Read on - and don’t have nightmares...

#1 You will lose your home if you are insolvent

If you are a homeowner and are insolvent then you might be worried that you’ll lose your home. In fact, depending on the route out of insolvency you choose, this often isn’t the case. For example, your home will be protected if you enter into an IVA (or, if you live in Scotland, a Trust Deed). However, bankruptcy will often involve selling your home, although this isn’t the case if you have little or no equity in it.

It’s a complicated issue and depends on your personal situation. That’s why it’s important to get expert advice. You can find out more about the different debt solutions available to you here.

#2 It will take you years to deal with your debts

This depends on the type of debt solution you enter into, the amount of debt you have and how much money you have available. For example, if you qualify for a Debt Relief Order you can clear the debts included in it in 12 months. Bankruptcy usually lasts a year, but may be extended for a further 3 years. An IVA usually lasts between five and six years, and a Trust Deed is usually four years. And the length of a debt management plan depends on the amount of debt you have and how much you can afford to pay towards it each month (after allowing for your living costs and priority bills).

One thing’s for sure: any debt solution is likely to be quicker than trying to pay off your debts without help when you’re struggling. Our debt solutions page has more information about each one.

#3 You can only start a debt solution if all your creditors agree

This is not true! The decision to approve your application for bankruptcy or a Debt Relief Order is made by the Insolvency Service, not your creditors.

In the case of IVAs and Trust Deeds, your creditors will be sent a copy of your IVA proposal and will have the opportunity to vote. However, not all of your creditors need to accept the proposal for your IVA or Trust Deed to be approved.

When it comes to a Debt Management Plan, your lenders don’t have to accept the reduced payment amount you offer them – but when we provide them with details of what you can actually afford, they usually accept. You can find out more on our debt solutions page.

#4 Your debts can affect the credit rating of someone you live with

This really is a common myth. But the truth is, your credit rating is based on you as an individual. It’s not affected by anyone who shares your property, postcode, or last name.

The exception is anyone with whom you have joint accounts, or for whom you have acted as a guarantor. Even if you have been financially linked with someone else, it’s possible to break those ties. There’s more information about how that’s done here.

#5 You’re not in enough debt for a Debt Management Plan

A Debt Management Plan (DMP) isn’t the best solution for everyone. But it can work for different people with very different amounts of debt – and there’s no set minimum for a Debt Management Plan. You can find more information about how a DMP works and whether it might be right for you here.

#6 If you fall behind on loan repayments you will lose your car

This isn’t necessarily true. There are a few different ways to buy a car on finance. Do you have a Hire Purchase or lease agreement? If so, then you don’t own the car until you’ve made all the repayments. (The same applies to furniture or anything else you buy with HP) This means you could indeed be at risk of losing your car if you fall behind with repayments. That’s why HP and lease payments are priority debts. To make sure you don’t lose the car you should make sure those repayments are covered before you think about paying off other debts like credit cards and unsecured loans.

However, if you take out a loan to buy a car, the car is yours. It won’t necessarily be repossessed even if you default on the loan.

Don’t forget, however, that your car could be repossessed if any of your debts are passed to bailiffs. You can read more about bailiffs below, and get advice about dealing with all of your debts here.

#7 ...or your house

Of course you know your home may be at risk if you fall behind with a mortgage or secured loan. But what about other debts?

Forcing the sale of your home for any unsecured debt is a long process that involves going to court. It’s very unusual (although not impossible) for a creditor to do this. If you’re worried about losing your home because of debt, you can find information about debt solutions here.

#8 You have to include your partner in your Debt Management Plan

Unless you have joint debts, you can have an individual Debt Management Plan even if you are married or live with a partner. You can keep it confidential if you don’t want your partner to know – although in most cases we’d recommend you tell them. You’ll usually find that they’re supportive. There’s more information here.

#9 Any debt solution will wreck your credit score

It’s true that a debt solution will have a negative impact on your credit history. In most cases this will last six years from when you start the debt solution (or shortly after).

However, if you have missed payments, CCJs and defaults then these will already be recorded in your credit history and will have damaged your credit score. A debt solution can help you press "reset” on your finances by allowing you to repay or write off your problem debt. You can then focus on rebuilding your credit history.

There is more information about what credit history is, and how it’s affected by different debt solutions, on our website here.

#10 If you go bankrupt everyone will know

Bankruptcies, IVAs and other formal insolvency solutions are listed online by the Insolvency Service. So whilst they are public, it’s unlikely that anyone you know will see this information unless they go looking for it. Bankruptcy used to be advertised in local newspapers, but nowadays this very rarely happens.

Your tax code may change when you become bankrupt. However, your employer won’t necessarily know you are bankrupt: there are a number of reasons why your tax code could change.

In some professions your employer will need to know if you become bankrupt, and there are some jobs you won’t be able to do until your bankruptcy is discharged. Otherwise, your employer will not need to know. Check your employment contract (and your tenancy agreement if you rent your property) to see if your job or home would be affected by bankruptcy or another insolvency solution. There’s more information about bankruptcy here.

#11 Being in debt means bailiffs can break into your property and take anything they want

Bailiffs can only visit you if they are instructed to do so by the court. This usually happens in the case of tax debts, court fines or debts related to a business. They’re very unlikely to be instructed for consumer credit debts, like behind with loan, credit card or catalogue payments, unless you have defaulted on a CCJ. Sometimes a debt collector may turn up at your property claiming to be a bailiff. These people do not have the powers to enter your property or take anything away.

What if you are visited by a real bailiff? They cannot legally break into your property unless they are collecting unpaid magistrate’s court fines, HMRC debts or business debts. For all other debts, think of bailiffs a bit like vampires: they can’t come into your property unless you let them in. (‘Letting them in’ includes leaving a door or window unlocked.) You can find more information about bailiffs’ powers here.

#12 Employers will check your credit score when you apply for a new job

In some professions you may have to go through a credit check when applying for a new job. These include accountancy, financial advice, and law. But your employer should tell you before carrying out this check. For most other jobs, it’s unlikely that your employer would ever see your credit history. You can find more information about credit scores here.

#13 You’re on your own.

Often the scariest thing about being in debt is thinking that your debt problems are worse than everyone else’s, and that you have to deal with it all by yourself.

The truth is, there are many thousands of people in the same situation as you. And help is out there. However bad you think your debts are, there is always a solution. You can see what options may be suitable for you here.

We hope you’ll be happy with our service but, if you’re not, we want to hear from you so we can try to put that right. Read here for information about our Complaints Procedure and about your right to refer a complaint to the Financial Ombudsman Service.

Your payments into a Debt Management Plan are protected and compensation could be available from the FSCS if there are any shortfalls in funds held on a customer's behalf.

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